Economic Theory

Debate – should we support intellectual property rights?

Nothing elicits more vigorous debate among free market types than the protection of intellectual property. Opponents view IP as a monopoly conferred by the government which distorts economic incentives and damages the free functioning of the market. Supporters, meanwhile, see IP as a form of property right that simply upholds claims to the products of our own labour, and is, therefore a necessary component of any legal framework which defends open competition and individual rights.

Two members of the IEA team weigh up the pros and cons.

Should we support intellectual property rights?

Shanker Singham, Director of the IEA’s International Trade and Competition Unit, says YES

In order to better understand this issue, it is important to put it in its proper context. We believe that wealth is created, when property rights are protected, trade is open and liberal, and competition on merit is the organising economic principle.

Whether you believe intellectual property rights are an important part of freer trade and freer markets, turns on whether you believe intellectual property rights are granted by the government (in this case to promote innovation) or whether they are a property right.

This issue was tested with some islands off the coast of Norway, the Spitsbergen archipelago, which had no government at the time that American mining companies had mined in the land. When Norway asserted rights over these islands, there was a question of whether the mining rights belonged to Norway or to the American companies. In this case, a treaty resolving the matter recognised the property rights of the American companies.

John Locke believed the mixing of one’s labour and one’s savings and resources led to the property right. Following this logic, when the government grants a patent, it is merely recognising that property right as opposed to granting the right itself ex nihilo. That right exists because of the labour that was applied to the resource belonging to the rights holder, which is recognised in the case of a patent by only granting patents to those inventions which involve an inventive step which is not obvious to one skilled in the art, and which are capable of commercial application.

The intellectual property right – whether a trademark, copyright or especially a patent – is a crucial part of making sure markets function competitively and efficiently. Indeed, in many ways this property right is in even more need of protection because once lost, it cannot be returned (unlike a piece of real property).

Sometimes, concerns about intellectual property have more to do with the duration of the right itself, especially in the case of copyright. However, while it may be permissible to alter the length of the intellectual property term, and to have different terms for different subject matters, this does not mean that the right itself should not be protected. There is also no reason why a pharmaceutical patent for example, should have the same duration as, say one click technology – the amount of labour expended is far greater in the case of pharmaceutical research than for many business process patents in the high technology area.

Some hard questions need to be asked about what patents have already been granted, and about the excessive length of copyright protection – currently guaranteed during the lifetime of the author and for 70 years after their death. Yet here, we should avoid throwing the baby out with the bathwater. Protecting intellectual property rights is a crucial element of a market economy.

The IEA’s Head of Education Dr Steve Davies says NO:

Intellectual property (mainly patents and copyright) is an incoherent idea – unnecessary and increasingly damaging. We should be trying to severely cut it back or even scrap it.

Intellectual property is not like other kinds of property, not least because it is time limited (unlike property in land, for instance). If treated like other kinds of property it leads to bizarre results such as perpetual copyright. Moreover, ideas are inherently “un-scarce”, so a major justification for property is absent. In fact (as the law recognises) patents and copyrights are artificial rights, created by sovereign states. As such they can only be justified by their utility, rather than by appeals to, for example, natural rights.

A patent or copyright creates a time limited monopoly. This creates a monopoly rent for the holder – by design. Monopoly rents reduce general economic welfare so this requires a justification. The justification is that without the incentive of the time-limited supernormal profits created by the IP there would not be an incentive to create innovations and artistic works. This is an empirical claim but the evidence does not support it.

Despite much research over the last few years there is no clear evidence that strengthening IP rights has led to higher innovation and creativity. In numerous periods and countries where such protection was absent, levels of innovation have been historically higher – not lower. The case that there is a positive tradeoff between the costs of an IP monopoly and the benefits of higher innovation is weak to non-existent.

In addition, the form IP has taken over the last 30 years is increasingly harmful. Accumulating evidence suggests that it actually reduces innovation and creates opportunities for damaging activity such as patent trolling. If there is a need for an incentive for innovation this can be provided easily by things such as prizes, whether publicly or privately funded.

Shanker is an IEA Trade Fellow, having previously been the Director of the International Trade and Competition Unit (ITCU) of the Institute of Economic Affairs. As one of the world’s leading trade and competition lawyers, he has worked on the privatisation of the UK electricity market, the transition of the Soviet, Central and Eastern European economies and the apertura in Latin America. He has worked on the accession of Poland and Hungary to the EU, the WTO accessions of a number of countries, including China and Russia. Shanker was educated at St. Paul’s School, London and has an M.A in Chemistry from Balliol College, Oxford University and postgraduate legal degrees in both the UK and US.

Head of Education

Dr Steve Davies is the Head of Education at the IEA. Previously he was program officer at the Institute for Humane Studies (IHS) at George Mason University in Virginia. He joined IHS from the UK where he was Senior Lecturer in the Department of History and Economic History at Manchester Metropolitan University. He has also been a Visiting Scholar at the Social Philosophy and Policy Center at Bowling Green State University, Ohio. A historian, he graduated from St Andrews University in Scotland in 1976 and gained his PhD from the same institution in 1984. He has authored several books, including Empiricism and History (Palgrave Macmillan, 2003) and was co-editor with Nigel Ashford of The Dictionary of Conservative and Libertarian Thought (Routledge, 1991).

2 thoughts on “Debate – should we support intellectual property rights?”

  1. Posted 29/08/2018 at 09:30 | Permalink

    Bringing Locke’s argument into it is nonsense. By abolishing intellectual property rights you aren’t abolishing the right of an individual to own the product of their labour.You’re abolishing the right to artificially protect the profits that might accrue from the sale of the product of that labour. Since the law doesn’t or shouldn’t exist to artificially protect profit it’s difficult to see how you can justify intellectual property.

  2. Posted 08/09/2018 at 08:50 | Permalink

    It would be very interesting to see the research that supports that “The case that there is a positive tradeoff between the costs of an IP monopoly and the benefits of higher innovation is weak to non-existent.” How (un)ambigous are those research results?

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